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Digital Banking Scalability: Extend to Win

Editor's note: To win the battle for the consumer, banks and credit unions must develop a digital strategy that provides them with scalability.

Adapting to change is vital to business performance. There are few industries that have seen as much change as the banking. Current conditions in the marketplace have created an environment in which banks and credit unions are faced with a wide array of variables and trends they must respond to in order to survive.

The most significant aspect to the challenges being faced by these financial institutions is that they do not control the variables and trends impacting their organizations. Banks and credit unions historically have been able to decide when and how they would change the way they operate. Today, it is the customer and member – armed with digital devices and anxious for the latest innovations – that “call the dance.”

To be successful in this environment, banks and credit unions must develop and execute a digital strategy that provides them with as much extensibility, configurability and scalability as possible. The key to developing a viable approach to digital transformation is to remember that all of these characteristics must be seen as absolute, non-negotiable requirements. A weakness in any of these three affects the other two.

These characteristics are all connected and vital to meeting consumer expectations. For example, if a platform lacks scalability and leads to peak-period failure in a self-service banking channel, then all of the core requirements will be compromised at substantial cost.

Unfortunately, there are instances in the industry that prove this point. Earlier this year, millions of BB&T customers from Atlanta to Philadelphia were unable to access the bank's online portal, mobile banking app and ATM services. American Banker reported that the three-day system outage due to a malfunction cost the FI $15 million in lost revenue and an additional $5 million in noninterest expenses. A quick search of the Internet will yield results that confirm BB&T is not the only institution to suffer such losses.

No Pain, No Gain

The relationship between extensibility, configurability and scalability make the latter essential to the other two. The absence of scalability negates the value of having the ability to configure the digital environment on the fly to meet the expectation of consumers and the demands of regulators. The same applies to extensibility since being able to bring new innovations to market faster will not matter if the underlying platform cannot support the present system needs.

Scalability also is the key to growth, whether organic or by acquisition. This is a particularly pertinent topic as regional and mid-tier institutions seek to gain the scale they need to compete with the largest banks in the United States through mergers and acquisitions. Given more than $2.4 trillion in deposits have flowed into these megabanks in the last 1o years, these mid-tier and regional institutions have little choice but to seek growth through acquisition. The recent lifting of the regulatory pain associated with the $50 billion asset should further fuel the M&A activity in this market segment. However, without scalable digital platforms, the value of these deals will be greatly diminished.

The increasing consumer appetite for mobile services is another trend that can test the capacity of a digital platform. One regional bank experienced a 500 percent increase in digital engagement after rolling out its new platform. Innovations in new account opening services also are likely to increase the level of activity seen from digital devices. Certainly other innovations that have a similar impact will follow.

Though some financial institutions consider the cost of scalability optional, it is not. The other options ultimately will result in far more expense. For example, some IT departments try to accommodate the impact of these factors on user volume by running multiple systems or instances of the digital solutions. This not only creates a material amount of operational overhead, but it also may produce disparate user experiences as well as exposing systemic weaknesses that impact service levels.

The only constant in business is change. From economic cycles to technological innovations to company growth (and growing pains), a bank or credit union’s agility and adaptability determine whether it capitalizes on the opportunity or languishes in the liability. Nowhere is this more important than in the digital channels that are fast becoming the primary conduit to serving customers and members. To win the battle for the consumer, scalability is a must.